No 6505
Thursday 10 May 2018
Vol cxlviii No 29
pp. 550–569
A Discussion was held in the Senate-House. Deputy Vice‑Chancellor Dame Carol Black was presiding, with the Registrary’s deputy, the Senior Proctor, the Senior Pro‑Proctor, and ninety-two other persons present.
The following Reports were discussed:
Editor’s note: the remarks made on the 'Topic of Concern to the University:
Standard of proof applied in student disciplinary cases (Reporter, 2017–18, 6496, p.
396 and 6497, p. 413)' are not yet ready for publication but will be included in the
Reporter at the earliest opportunity.
(Reporter, 6502, 2017–18, p. 514).
Professor R. J. Anderson (University Council, Computer Laboratory, and Churchill College):
Deputy Vice-Chancellor, I am a member of Council but speak today in a personal capacity.
Ruth Charles and I dissented from this Report on the grounds that we do not have a clear business case with enough detail on how repayments for the new bond will be achieved. We noted in our dissent that the first phase of North West Cambridge does not inspire confidence as it was two years late and £100m over budget. The current rental income is not sufficient to repay the existing bond of £350m when it falls due in 2052, and the case for a second phase is as unconvincing as ever.
I would like to refer Regents to the remarks I made at the Discussion on 3 November 2015 on what went wrong with phase 1.1 The North West Cambridge Executive realized in March 2014 that the total projected expenditure had risen from £338m to £395m (compared with the £323m authorized by this House). They solved the problem by expanding the scope of the project, bringing forward 164 key worker homes from Phase 2 into Phase 1 and extending the completion deadline from 2016 to 2017.
The Council, of which I was not then a member, placed a Notice in the Reporter on 30 July 20142 increasing the borrowing limit from £242m to £311m, followed by a Report to the Regent House on 24 September 2014,3 which claimed that Phase 1 would only be complete by March 2017, but it did not mention cost inflation at all; neither do the Council Minutes. The Syndicate smugly described this in its risk register as ‘restructuring’.
I was elected to Council from January 2015 and in March, Council was asked for a further £300m borrowing facility. This was represented as being for development elsewhere, specifically for a shopping mall in the Old Press / Mill Lane site and a hotel on Trumpington Street. The Senior Pro-Vice-Chancellor explained that we could borrow money for less than the return we could get by investing in non-operational estate. I dissented, as I did not believe that the Old Schools had the managerial capacity to build and operate a shopping mall or a hotel. Nonetheless the proposal appeared in a Report in May4 and was duly Graced on 24 June 2015.5 Only then was it admitted to the Syndicate (on 29 June), the Finance Committee (on 8 July), and the Council (on 13 July) that the North West Cambridge project was in financial trouble, with a shortfall of £50m–£80m.
Dr Charles and I exercised our right as Council members to access the papers on the North West Cambridge Syndicate (as it then was) and wrote a report for Council and the Board of Scrutiny on what went wrong. It is summarized in the remarks I made here on 3 November 2015, to which I refer concerned Regents for the details.6 That experience teaches me to look rather closely at proposals like the present one.
Since then North West Cambridge has slipped another fifteen to eighteen months, with completion finally due this year. The Postdocs of Cambridge Society has conducted a survey of residents and found that over half are unhappy. The main complaint is cost, with utility charges coming in for particular criticism, though there are many other issues, from the finish of the apartments through ventilation to cycle paths. Meanwhile the Council is concerned that the rental income is not meeting expectations; unless we get approval from the Council to change the rental model, the rental income will not be sufficient to pay off the first bond when it falls due in 2052. A major underlying problem is the University’s ineptitude as a developer. We have been paying £350,000 per unit to build two-bedroom apartments, which is roughly twice what developers pay in West London and four times the cost in the West of Scotland.
I have tried and failed to get straight answers from the North West Cambridge Executive about why the build costs are so high and how they can be reduced if phase 2 goes ahead. I am simply told that those are the numbers that come back from tenders. Perhaps the Vice-Chancellor just needs to phone up three builders and say ‘Look, I want 200 two-bedroom apartments built in North West Cambridge; the fixed-price budget is £175,000 per unit; and you’re invited to bid on quality. What I mean by that is that we want durable buildings, and we greatly prefer understated classical elegance to architects winning prizes.’
As a member of the Planning and Resources Committee, I am well aware that we have enough difficulty constructing academic buildings on time and on budget, and fixed-price design-and-build procurement may be the best way forward. However, such competence as we have acquired at building labs and lecture theatres does not seem to have translated to residential construction. I am also sceptical that we can suddenly master the art of building shops and hotels, and do not buy the argument that there are guaranteed profits to be had from borrowing money to develop Mill Lane.
Deputy Vice-Chancellor, there is a final consideration. A complaint of Vice-Chancellors both here and elsewhere is lack of free cashflow. Although the University has a lot of income, it is almost all committed, mostly to salaries and student support. An academic leader wishing to undertake bold initiatives finds that they have to be small ones. From the viewpoint of senior management, this is a bug. From my viewpoint, both as an academic and a trustee of the University, it is a feature. It means that growth is bottom-up rather than top-down.
In business, angels might back ten startups for every one that works. Academia is much the same; you try a whole lot of things, and eventually one of them gets traction. The grants roll in and and the students beat a path to your door. Bureaucracies, however, are different; once the leader has made it policy to work on X, then X becomes too hard to kill.
For these reasons I oppose borrowing £600m without any credible plan to repay it.
Professor D. J. Maskell (Senior Pro-Vice-Chancellor, and Wolfson College), read by the Senior Proctor:
Deputy Vice-Chancellor, the University issued a public bond for £350m on 17 October 2012. In March 2015, approval of the Regent House was sought and given in principle, until May 2019, for further borrowing by the University up to a ceiling of £300m for income-generating projects, should the business opportunities be confirmed and borrowing conditions remain favourable. In this Report, the Council is seeking to increase the limit on this authority from £300m up to a total of £600m, and is recommending that Council be given authority to arrange external finance on the advice of the Finance Committee.
While the University has significant capital needs for its operational academic estate, it also needs capital to fund other major projects and developments. These include the provision of further housing for staff, nurseries, the potential commercial elements of development schemes such as Old Press Mill Lane, the development of commercial research facilities at West Cambridge, and environmental sustainability improvements that can generate a reasonable risk-adjusted rate of return. These projects are important for the University and can deliver financial returns capable of meeting interest and principal repayments on a bond issue.
Further investment in housing for University staff is a priority. There are several options to achieve this outcome, in addition to the obvious opportunity via phase 2 of the Eddington development. Detailed work is currently being undertaken to develop a proposal for Eddington phase 2 that delivers high-quality housing at an affordable cost, within a high-quality environment, with reasonable financial returns. I remain confident that it will be possible to develop such a proposal, thus allowing a development that is both strategically important to the University and capable of meeting the interest on and principal repayment of the bond, while also generating a surplus even under adverse scenarios. But if such a proposal does not meet with the approval of Regent House, there are many other developments, as outlined above, that can similarly be undertaken and which will repay the bond. Council is not seeking approval for any specific investment proposal at this juncture.
The reason for looking to raise bond finance now, ahead of the finalization of full cases for further development, is that interest rates are close to historic lows and there is a real risk that long-term interest rates might start to increase in the UK, as has been the trend recently in the USA. If there were to be a one percentage point increase in long-term interest rates before the University were able to borrow, this would represent £300m of additional interest on a £600m bond issue over 50 years. Adding such costs to future generations would not seem to be the best course of action. Long-term interest rate movements are by their nature uncertain, but current market conditions and expert opinion suggest that there is an excellent opportunity now to raise enough capital finance for the University’s medium-term strategic needs at a very low rate of interest.
In conclusion, approval for a bond issue is being sought now so as to lock in currently low interest rates. The money raised will support revenue-generating social, environmental, and commercial projects that are of real strategic benefit to the University and should generate a surplus over the cost of finance. Funds will be invested only after rigorous business case approval with appropriate oversight, including, where required, by Regent House.
Professor G. R. Evans (Emeritus Professor of Medieval Theology and Intellectual History), read by the Senior Pro‑Proctor:
Deputy Vice-Chancellor, I read this Report with concern. It took time and much searching to find any definition anywhere of ‘non-operational estates’ and I am still not clear of its exact meaning. The meaning of the expression as used in a Cambridge context ought surely to be spelt out for the Regent House with absolute clarity.
It appears that this gigantic sum is to be borrowed for speculative expenditure on buildings (and perhaps just land), in mere hope of a profit being made. Paragraphs 6–10 are masterpieces of obfuscatory explanation. Before the Regent House Graces this proposal it should expect to see a far more detailed breakdown of these vague descriptions.
I for one strongly support the dissenting note signed by two members of the Council.
(Reporter, 6502, 2017–18, p. 516).
Dr D. R. Thomas (Department of Computer Science and Technology, the West Cambridge Active Travel Group and the Cycling and Walking Working Sub-Group, and Peterhouse), read by the Senior Proctor:
Deputy Vice-Chancellor, the University’s current nurseries are excellent and so this plan to provide an additional nursery is another important step towards addressing the long waiting list. The current nurseries operated by Childbase provide an excellent quality of care, both in my experience and according to Ofsted. They are also good value as, while they are expensive, the list price is about £10 per day less than similar private nurseries in the city, and also eligible for salary sacrifice. Hence, the existing University nurseries represent one of the few excellent staff benefits that the University offers. It is therefore important to ensure that this new nursery attains the same level of quality and price as existing provisions.
From personal experience of the West Cambridge Nursery, and from submissions to the Cycling and Walking Working Sub-Group of the Transport Working Group of the Environmental Sustainability Strategy Committee about the Edwinstowe Close Nursery, I know of one area of deficiency in the current nurseries. Both lack sufficient cycle parking, both for the parking of cycle child trailers during the day and for drop-off. In addition, the most dangerous part of my child’s journey to nursery is probably the journey from the cargo bike to the nursery gate because a child could easily run out in front of the speeding traffic on Charles Babbage Road at that point. While drop-off by car to the nurseries will always be necessary, we should aim to ensure that drop-off by cycle and by walking is made practical for as large a proportion of parents and carers as possible. My understanding is that a survey was recently carried out of drop-offs by car to the West Cambridge Nursery – but that other modes were not counted.
In summary, the existing nurseries are excellent: let’s make this new nursery even better.
(Reporter, 6501, 2017–18, p. 471).
No remarks were made on this Report.